Category: Legal

The Libra Association— the non-profit organization behind Facebook’s Libra— has announced it is seeking to apply to become a licensed payment system under the Swiss Financial Market Supervisory Authority (FINMA).

The association announced on Wednesday that the license under FINMA can empower billions of people. In addition to that, the association has also submitted a request for an assessment of how it would classify the Libra project.

The Swiss financial regulator further noted that due to the issuance of Libra payment tokens, the services planned by the Libra project would clearly go beyond those of a pure payment system, signifying it would be subject to additional requirements.

The agency further explained that such additional requirements would relate in particular to capital allocation (for credit, market and operational risks), risk concentration and liquidity as well as the management of the Libra reserve.

On the other hand, the Libra association has explained in a statement that Switzerland provides a pathway for responsible financial services innovation harmonized with global financial norms and strong oversight.

It further added:

“We are engaging in constructive dialogue with FINMA and we see a feasible pathway for an open-source blockchain network to become a regulated, low-friction, high-security payment system.”

Ever since Libra launched, regulators all over the world have shown concerns over Libra raising the risk of money laundering through its global cryptocurrency available to millions of users on Facebook. Just yesterday, U.S. Treasury official Sigal Mandelker reiterated that Facebook’s Libra project must without doubt meet the highest standards of regulatory compliance prior to its launch.

Most recently a group of U.S. lawmakers, led by Democratic Congresswoman Maxine Waters, met FINMA officials to discuss the Libra project. However, the meeting did not erase Waters’ concerns. In fact, Congresswoman Maxine Waters—who called for a moratorium to halt the project—recently traveled to Switzerland to examine how the Libra project would work.

Global money-laundering watchdog the Financial Action Task Force (FATF) is also said to be looking into Libra. FATF President Xiangmin Liu stated that they want to make sure that in case there are significant risks, they must be addressed and dealt with.

In response to the abundance of criticism, the Libra association has reiterated its commitment to work with regulators.

“Since our vision for the Libra project was announced three months ago, we have maintained our commitment that technology-powered financial services innovation and strong regulatory compliance and oversight are not in competition,” said Dante Disparte, Libra Association’s head of policy and communications.

Leading crypto exchange Binance has announced its partnership with digital asset trust company Paxos to launch a USD-pegged stablecoin.

According to the announcement made on Thursday, the two companies will launch a USD-pegged stablecoin called Binance USD (BUSD). The stablecoin has already received the approval of the New York State Department of Financial Services (NYDFS) and will be available for trading later this month.

Paxos co-founder and CEO Asia Rich Teo has stated that the NYDFS’s approval of the stablecoin is a vital step towards long term stability in global crypto markets. He further added:

“We are proud that our stablecoin as a service offering enables trusted companies like Binance to introduce products customized for their users. The Paxos brand symbolizes regulatory integrity, consumer protection and transparency for all of our partners.”

The upcoming stablecoin will be backed by U.S. dollar on a 1:1 ratio. In addition to that, a Binance spokesperson stated that the BUSD will be built on the Ethereum blockchain, however it may move to Binance Chain in the future.

The coin will start trading on Paxos’ and Binance’s exchange platforms later this month. Paxos will issue the coin and look after the reserves of dollars–and Paxos customers will be able to directly purchase BUSD tokens through the company’s wallet using either U.S. dollars or PAX, its own stablecoin. Binance users will likewise be able to trade BUSD on the platform.

BUSD will trade against three cryptocurrencies – Bitcoin (BTC), Binance coin (BNB) and XRP – on the platform. According to the announcement, Paxos will act as both the custodian and the issuer for the stablecoin, and will regularly audit the dollar holdings.

Binance CEO Changpeng Zhao, commonly known as “CZ”, stated that Paxos is leading the digital trusts space and further added that Binance is excited to work with them in developing their native stablecoin.

“We hope to unlock more financial services for the greater blockchain ecosystem through the issuance of BUSD, including more use cases and utility through the power of stable digital assets.”

Following this news, BUSD joins the Paxos Standard and the Gemini Dollar as an NYDFS-approved stablecoins.

Meanwhile, Binance has been steadily showing interest in stablecoins. The exchange previously announced its intention to issue stablecoins worldwide as part of its Venus project. Back in July, it listed BGBP stablecoin, which is pegged 1:1 to the British pound, however is built on the Binance Chain blockchain network. At the time, the company said it would launch a collection of stablecoins pegged to different fiat currencies.

As China’s central bank gets ready to launch its own cryptocurrency, it has been reported that seven institutions will be amongst the first to receive state-issued cryptocurrency.

According to a report published on August 28th, former global head of financial strategy for China Construction Bank Paul Schulte, together with another anonymous source, have disclosed the information and have confirmed that seven institutions will be indeed be the first ones to receive China’s CBDC, which they are calling DC/EP — short for Digital Currency/Electronic Payments.

The first beneficiaries of China’s CBDC are Alibaba, Tencent, China Construction Bank, the Industrial and Commercial Bank of China, the Bank of China, the Agricultural Bank of China and Chinese banking association Union Pay. An eighth beneficiary is said to join the other seven, however its name hasn’t been disclosed yet.

According to the sources, the seven institutions will be responsible for “dispersing the cryptocurrency to 1.3 billion Chinese citizens and others doing business in the renminbi (China’s official fiat money).” Notably, China’s central bank “hopes the currency will eventually be made available to spenders in the United States.”

Meanwhile, this strategy reminds of other similar projects relating to cryptocurrency distribution, namely Facebook’s Libra initiative. For instance, Facebook’s planned Libra cryptocurrency will be backed by a basket of currencies issued by central banks with support from companies such as Mastercard and Uber in the United States, Vodafone in England and Mercado Pago in Argentina.

Another similar potential project has been reported last week by the Bank of England governor Mark Carney who suggested the idea of a new currency backed by a number of central banks to replace the U.S. dollar as the global reserve currency.

Moreover, China may issue its CBDC before Facebook rolls out Libra, according to official sources. The anonymous individual confirmed that the technology behind the cryptocurrency has been ready since last year and it could launch as soon as November 11th, which is knows as Singles Say – China’s busiest shopping day.

When launched, Libra’s announcement actually sparked discussions among Chinese financial regulators, encouraging the CBDC designer to rethink various models which can involve more non-governmental institutions in the development and issuance process. Many regulators, including the PBOC, have reiterated the need for Libra to be put under central bank oversight to prevent potential foreign exchange risks and protect the authority of monetary policy.

The Chinese officials recognize the difference between cryptocurrencies such as Bitcoin and CBDC. They claim that the CBDC is very different from Bitcoin. The ledger is centralized and the ledger must adopt real-name verification and residents will be able to exchange the digital currency in commercial institutions.

Following this news, neither People’s Bank of China nor any of the seven institutions have responded to requests of denial or confirmation. However, it aligns with key statements made by Mu Changchun, deputy director of the Paying Division of the People’s Bank of China (PBOC) and the new head of China’s cryptocurrency research lab at a speech on August 10th at the China Finance 40 Forum.

At that time, Mu described the central bank’s “two-tiered” system, where the bank would create the cryptocurrency and a small group of trusted commercial businesses would “pay the central bank 100% in full” to be allowed to distribute it.

He stated at that time:

“The central bank’s digital currency can be circulated as easily as cash, […] which is conducive to the circulation and internationalization of the renminbi.”

Social media giant Facebook has hired a Washington-based lobbying firm in an attempt to influence U.S. lawmakers over its Libra cryptocurrency project, according to a report from O’Dwyer PR.

Citing lobbying registration documents filed with Congress, the report revealed that FS Vector will now support the social media giant on issues related to blockchain policy.

Founded last year, Washington-based FS Vector is an advisory firm that specializes in regulatory compliance, public policy, as well as business strategy for the fintech, cryptocurrency, blockchain and financial services sectors.

According to the report, FS Vector partner John Collins will lead the Facebook account. Prior to this job, he served as former vice president of international policy at the American Bankers Association’s international subsidiary, the Bankers Association for Finance and Trade. He also worked as Senior Professional Staff for the U.S. Senate Committee on Homeland Security and Governmental Affairs and led Congress’ first work into digital currencies in 2013.

FS Vector joins a number of other lobbying companies, which include the Sternhell Group, the Cypress Group, Davis Polk, Baker Hostetler and the OB-C Group. Facebook has also recently hired UK Standard Chartered lobbyist Ed Bowles as its London-based director of public policy.

Earlier this month, the social media behemoth also hired Susan Zook of Mason Street Consulting, a former aide to Senator Mike Crapo (R-Idaho), the chairman of the Senate Banking Committee – to lobby for Libra.

The news follows as Facebook is getting pressure from U.S. lawmakers over its planned global cryptocurrency project. Primarily, lawmakers are concerned over user privacy and trust, especially since the company has been previously found violating user’s privacy.

Facebook formally disclosed the details of the Libra initiative in June, which could potentially bring the world’s “unbanked” billions into the digital economy by allowing anyone to safely buy, sell or send money to others via Facebook. The proposed digital currency, which has yet to meet regulatory approvals, is set to launch sometime next year.

Meanwhile, Facebook‘s recent visit to Switzerland’s financial authorities has received even more scrutiny from U.S regulators, such as the firm has notably chosen to register the Libra Association in Switzerland.

At a hearing before United States House representatives in mid-July, chief of Facebook’s Calibra wallet service David Marcus had claimed that the choice had “nothing to do with evading regulations or oversight,” arguing instead that the jurisdiction is an international hub conducive to doing business.

Also in July, U.S. lawmakers drafted a bill – “Keep Big Tech Out Of Finance Act” – which aims to prohibit large platform utilities from being a financial institution or being affiliated with a person that is a financial institution, and for other purposes.

FINMA, the Swiss financial watchdog has approved banking and securities dealer licenses to two new “crypto banks”. SEBA and Sygnum are two companies entirely focused on working with blockchain-based products and have been cleared to operate at the same level as traditional banks, making them effectively the first crypto banks.

First Licenses Awarded

FINMA published the announcement on Monday, this being the first time it has issued such licenses blockchain-focused companies. The awarded licenses allow SEBA Crypto Sygnum to provide services to institutional customers as well, marking a major milestone for the digital asset industry.

SEBA says it will be operational in October once it fulfils secondary criteria requested by FINMA. It plans to offer corporate and asset management services for the new asset class.

Sygnum, headquartered in Zurich, is working with the German stock exchange, telecoms operator Swisscom and other partners to list and trade tokenised securities on a distributed ledger technology platform.

“Being awarded the banking and securities dealer licence from FINMA is a significant milestone, and an important step towards the institutionalisation of the digital asset economy”, said Manuel Krieger, co-founder and CEO of Sygnum Switzerland.

AML Restrictions Extend to Crypto As Well

At the same time, the Swiss Financial Market Supervisory Authority (FINMA) issued rules on how to apply anti-money laundering regulations to the banks “where the inherent anonymity of blockchain technology presents increased risks”.

The watchdog agency clarified that the existing rules to check money laundering will apply to virtual asset service providers (VASPs) including exchanges, wallet providers, and trading platforms.

This restricts the transfer of tokens to people the bank knows. According to the guidelines, the blockchain-based service providers are obligated to verify the identity of their customers, to establish the identity of the beneficial owner, and to take a risk-based approach to monitor business relationships.

“FINMA-supervised institutions are thus not permitted to receive tokens from customers of other institutions or to send tokens to such customers. This practice applies as long as information about the sender and recipient cannot be transmitted reliably in the respective payment system.”

The Swiss financial centre has for the last couple of years been gearing up to provide a blockchain-based infrastructure to trade the new digital assets. The Swiss stock exchange operator SIX plans to launch a new platform next year while several start-ups have also sprung up in Switzerland.

Following these initial license awards, other companies are expected to take advantage with applications already submitted by Bitcoin Suisse, Crypto Finance and Lykke.